January 17, 2012

McGinnis and Mangas Response

by dan rodriguez

I am pleased to give Prof. McGinnis and Mr. Mangas the space to respond to my post, and to have the last word in this useful colloquy.

We are grateful to Dean Rodriguez for allowing us to post a reply to his thoughtful response to our article. We are particularly glad of the opportunity, because it allows us to make clear that title of the piece was not of our choosing. We do not want to kill law schools, and the oped in fact refers the valuable role they will continue to play in a reformed system of legal education. We wholly agree that Northwestern in particular will endure and prosper by providing an education that repays its students.

Another advantage of a reply on an academic blog is that is allows us to offer a more abstract, dare we say academic, premise for our piece. Markets are a dynamic discovery process. We do not pretend to know the optimal mix of educational institutions for the provision of legal education. But we do not believe that we should regulate their characteristics any more than is necessary to produce public goods. In this context we see the goods as important but limited to two: (1) providing assurance that lawyers are competent, given the asymmetries of information between lawyers and consumers, and (2) providing legal knowledge to be a resource to citizens when discussing legal and public policy. We do not believe the dean has made a case that accredited colleges cannot provide these goods for some lawyers, particularly if followed by year’s apprenticeship. The market would certainly provide feedback in the terms of the bar passage rates and employability.

Another premise of our article is that there are varying levels of human capital that are necessary for different legal tasks. It may well be that almost all lawyers at top law firms will continue to have J.Ds. Similarly, almost all principals at Goldman Sachs have MBAs and many have Phds. Yet other businesses across the country benefit from employees with only undergraduate degrees in business. The same is likely true of law. Everyone agrees that the most underserved groups are the poor and middle class. Their usual needs, while often too complex for non-lawyer handling, generally do not require the same level of human capital as securitization deals or complex litigation. Thus, even if some law requires the kind of specialized knowledge that only graduate school can provide, other law does not. Moreover, lawyers can work under the supervision of those with specialized training or call on those with such training as needed. Thus, one disagreement we have with the dean is his suggestion that law is moving in any one direction. Law is multifarious, and methods for producing lawyers should be multifarious as well.

Dean Rodriguez also questioned the connection between the cost of law school and the price of legal services. The case for that connection begins like this: if a rational actor does not believe that he will be able to earn enough as a lawyer to repay the cost of his education and earn an acceptable profit, he will choose not to go to law school. Thus, if the price of law school is high relative to the expected prevailing income for lawyers, fewer people will decide to go to law school. The fact that law school applications have dropped at a time when unemployment for practicing lawyers has increased seems to bear this out. A decrease in law school applicants will ultimately lead to a decrease in the supply of new lawyers. A decrease in the supply of lawyers leads to an increase in legal fees because the limited supply of lawyers will be able to offer their services at price points higher on the demand curve. Lowering the cost of legal education makes the law a more economically attractive career option. More attractive career options mean a greater supply of new lawyers. A greater supply of lawyers means a more diverse offering of legal services across the demand curve.

Dean Rodriguez is correct that reality is more complex. Economic booms and busts ensure that over short-term economic cycles the intersection of supply and demand may become uncoupled from the price of law school. A shortage in the supply of lawyers may temporarily become an oversupply during a recession. Information inefficiency can also create an economic reality that does not mirror expectations. Lack of employment transparency—the topic of the Dean’s January 17 post—is one example. If law schools give students an overly optimistic picture of future employment prospects, some students may opt for law school despite the reality that law school is not a good investment for them. While these complexities refute the notion that the causal chain is smooth and unbroken, the larger point remains. Over the long-term, in a growing economy, setting a regulatory floor on the cost of becoming a lawyer acts as a governor on the supply of new lawyers, ultimately increasing the price of legal services.

The dean’s final point is that other nations are moving to the American model of requiring a degree like a J.D. Some are, but not all. Moreover, no other nation has as dynamic a private undergraduate sector as the United States, which may make it better qualified to provide this service than other nations. Further, public action theory teaches that concentrated groups, like the organized bar, tend to benefit in the legislative and particularly the regulatory process over diffuse groups, like consumers. Thus, we do not think that much can be inferred from regulatory trends elsewhere. They may simply illustrate the gains made by concentrated bars over diffuse groups of legal consumers. In any event, our basic point stands. We think foreign nations should welcome, as we do, a graduate degree as an option, but see no reason to forbid a less expensive alternative. A more dynamic market can help us sort out what is the higher value added method of education for which student at what time.